Iron ore sank below $40 a metric ton on rising low-cost supply from the world’s top miners and weakening demand in China, with investors assessing the impact of the first shipments from Gina Rinehart’s Roy Hill mine within the coming days.
Ore with 62 percent content delivered to Qingdao lost 2.4 percent to $39.06 a dry ton, a record low in daily prices compiled by Metal Bulletin Ltd. dating back to May 2009. The raw material is headed for a third annual decline and has lost 80 percent since peaking in 2011 at $191.70.
Iron ore has been pummeled as a slowdown in China hurt demand as producers including BHP Billiton Ltd. and Rio Tinto Group in Australia and Brazil’s Vale SA boosted supply to defend market share. As data last week showed China’s steel industry shrank further, billionaire Rinehart’s mine in Australia’s Pilbara geared up to start exports, with two vessels set to be loaded at Port Hedland. Stockpiles at China’s ports, tracked as a gauge of demand in the largest user, climbed to the highest in about seven months.
The drop below $40 would reflect “weak demand, post-summer destocking, and perhaps a buyers’ strike on the expectation of lower prices given the rate of seaborne’s ongoing supply expansion,” Tom Price, an analyst at Morgan Stanley in London, said before the price data were released. The outlook for China’s steel demand is subdued, he said.
While iron ore has retreated with commodities from oil to copper this year, it remains well above levels seen in recent decades. The commodity traded as low as $10.51 a ton in 1988, when annual benchmark contracts were negotiated between the largest miners and steel producers, according to data from the International Monetary Fund. That pricing system was superseded by a shift to spot rates as China’s demand ballooned.
Losses this year have hurt miners’ shares. BHP, which is also facing the fallout from a mine-dam burst in Brazil, sank 34 percent in Sydney in 2015, dropping on Friday to the lowest since 2005. Rio fell 24 percent, while Fortescue Metals Group Ltd. declined 32 percent. The trio are Australia’s largest iron ore miners.
Roy Hill’s inaugural cargoes from Port Hedland, the world’s largest bulk-export terminal, come a few months later than initially planned. Roy Hill Holdings Pty has said that almost 90 percent of the output from the 55 million ton-project is under long-term contract, meaning it won’t directly pressure prices.